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FEFPEB CONGRESS

FEFPEB CONGRESS. GLOBAL SAWNWOOD FLOWS AND THE IMPACT OF BIOENERGY October 18, 2013 Cormac O’Carroll, Heikki Vidgren. PÖYRY – CONSULTING AND ENGINEERING EXPERTS.

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FEFPEB CONGRESS

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  1. FEFPEB CONGRESS GLOBAL SAWNWOOD FLOWS AND THE IMPACT OF BIOENERGY October 18, 2013 Cormac O’Carroll, Heikki Vidgren

  2. PÖYRY – CONSULTING AND ENGINEERING EXPERTS Pöyry is an international consulting and engineering company, dedicated to serving clients across the world’s energy and forest industry sectors • 6,500 experts • Over 15,000 projects annually • Solid track record in pulp and paper • EUR 775 million net sales in 2012 FEFPEB- SYPAL 2013

  3. AGENDA Introduction of Pöyry Global Sawnwood Flows Impact of Bioenergy Conclusions FEFPEB SYPAL 2013

  4. GLOBAL SAWNWOOD FLOWS

  5. GLOBAL SOFTWOOD SAWNWOOD DEMAND The global softwood sawnwood market is around 290 Million m3 110 106 80 81 84 69 68 16 16 14 78 12 19 17 16 Russia 13 Eastern Europe 26 35 21 32 16 16 Western Europe 21 14 North America Japan China 21 22 20 Consumption Million m3 15 2000 Latin America 2005 2010 2012 FEFPEB SYPAL 2013

  6. SOFTWOOD SAWNWOOD DEMAND CYCLES In addition to the increasing demand in growth markets, the cyclicality of the large mature markets have a significant impact on the demand of sawnwood. Where are we in the cycle? North America & Western Europe FINANCIAL CIRISIS -38% =78Mm3 DOT COM BUBBLE -3% =6Mm3 ENERGY CRISIS/ GULF WAR -24% =34Mm3 GLOBAL RECESSION -11% =18Mm3 OIL CRISIS -21% =28Mm3 Source FAO (slightly different mmbf/m3 conversion vs p 4) FEFPEB SYPAL 2013

  7. Supply deficit GLOBAL FOREST RESOURCES – REGIONAL BALANCES Growing economy and demand of traditional forest products in Asia and Bioenergy sector in Europe will create significant regional wood deficits. Increasingsupply Stable supply Equator FEFPEB SYPAL 2013 19 October 2013

  8. SOFTWOOD SAWNWOOD TRADE FLOWS Historically major trade flows have been between North America, Europe and Japan. Importance of China as destination and Russia as source has increased during the last years. 26.7 2012 1995 0.3 2.0 8.2 3.3 3.0 0.9 14.8 0.3 22.3 2.0 3.9 1.7 7.4 1.2 0.4 1.5 0.5 1.9 5.8 37.3 5.8 11.1 7.3 0.4 0.5 0.3 1.2 3.4 1.4 1.3 0.9 0.3 0.7 10.2 1.7 0.3 0.3 0.3 0.5 0.4 0.8 0.2 1.9 0.4 Million m3 Trade flows of over 0.2 million m3 FEFPEB SYPAL 2013 19 October 2013

  9. GLOBAL SAWNWOOD BALANCE 2012-2020 Based on the current economic outlook, the growing demand of sawnwood lead by the fast growth in China will be reaching the limits of existing capacity by 2020. China N-America + Europe + Russia Total Demand 2012 Production 2012 Demand 2020f Capacity (highest production in 2005-2012) The forecasts are based on the 2013 spring IMF economic outlook FEFPEB SYPAL 2013 19 October 2013

  10. REGIONAL SAWNWOOD BALANCES 2012-2020 Outside China, the demand is expected to grow most significantly in North America, where the impact of economic crisis was more severe and demand in construction market is more cyclical than in Europe. Eastern Europe North America Western Europe China Russia Demand 2012 Production 2012 Demand 2020f Capacity (highest production in 2005-2012) The forecasts are based on the 2013 spring IMF economic outlook FEFPEB SYPAL 2013 19 October 2013

  11. EUROPEAN SAWNWOOD BALANCE 2012-2020 Demand in Eastern Europe will grow to the level or above current capacity in 2020. Increasing capacity utilisation in Western Europe, more capacity in Eastern Europe or growth of import from Russia is required to meet the demand in W-Europe. Western Europe Eastern Europe Europe Russia Eastern Europe + Russia Europe + Russia Demand 2012 Production 2012 Demand 2020f Capacity (highest production in 2005-2012) The forecasts are based on the 2013 spring IMF economic outlook FEFPEB SYPAL 2013 19 October 2013

  12. GLOBAL SOFTWOOD SAWNWOOD PRICING As the trade flows between the major markets in Europe and North America are small, also the price developments of these regions are different. The prices in Europe recovered in 2010, when the output and inventories balanced to lower demand. In America, small acceleration of growth increased prices since 2011. Softwood sawnwood prices in North America and Western Europe (Index: €, 1Q2003 =100, nominal) FEFPEB SYPAL 2013

  13. EUROPEAN SAWNWOOD BUSINESS CYCLES In addition to low volume, the industry is challenged by low margins. The sawnwood prices have decreased in real terms since the beginning of 2000’s, but log prices in many locations have increased Sawnwood and log prices in Europe Index (real) 1Q2000= 100 FEFPEB SYPAL 2013

  14. THE IMPACT OF BIOENERGY

  15. BIOENERGY– HOW BAD CAN IT GET? Bioenergy incentives for heat and electricity generation are highly complex and differ greatly in Europe. Incentives for renewable heat from biomass Incentives for renewable electricity from biomass Legend: Low interest loans Investment subsidiaries Other Price-based schemes None Legend: Feed-in tariff (FiT) Market premium tariff Tender Green certificates (GC) Net-metering None • Green certificates: Green electricity support mechanism linked to the market economy through tradable commodities representing the environmental value of renewable energy sources. Typically, 1 GC represents 1 MWh of generated green electricity. The support value of the GC is generally on top of the market electricity price • Feed-in tariff: Cost-based compensation to renewable energy producer through long-term contracts to help finance renewable energy investments • Net-metering: A compensation mechanism for the difference between the amount of electricity taken from the grid and the amount of electricity fed into the grid. FEFPEB SYPAL 2013

  16. GLOBAL PELLET DEMAND OUTLOOK In our central scenario we expect the market will more than double by 2025 with demand for industrial pellets being the main driver. FEFPEB SYPAL 2013

  17. PELLETS TRADE FLOWS 2009 - 2012 Wood pellet imports into the EU have grown at a steady pace with North America being the key supply source. Source: Eurostat, Pöyry Analysis FEFPEB SYPAL 2013

  18. PELLETS IN HEATING MARKETS - CENTRAL SCENARIO, EUROPE Based on an analysis of country specific National Renewable Energy Action Plans, we expect the heating pellet market to continue growing out to 2020. Austria and Germany are expected to account for the majority of the projected growth. FEFPEB SYPAL 2013

  19. PELLET MARKET DYNAMICS – ATLANTIC MARKET We expect to see a phase of rapid expansion in the Atlantic market, followed by a stable market out to 2027. NL 2012 2019 2016 2023 2013 2020 2021 2015 2017 2027 2029 2026 2018 2014 2022 2030 2024 2025 2028 GB DK BE FEFPEB SYPAL 2013

  20. PÖYRY’s PELLET PRICE SCENARIOS After a period of stable price levels the end of the support scheme for UK projects will result in falling market prices. Pellet Price CIF ARA UK incentives come to an end FEFPEB SYPAL 2013

  21. PAYING CAPABILITY RANGES The lowest paying capabilities are exhibited by pulp and panel mills so companies in these sectors are most at risk of being forced to exit the market. Wood Paying Capability Ranges by Industry in the UK FEFPEB SYPAL 2013

  22. SO WHAT HAPPENS IN PRACTICE As pulpwood and residue prices increase small sawlog and pallet boards from construction mills are likely to experience upward price pressure Small sawlog Pulpwood Large sawlog Construction sawmills Pallet sawmills Pulp & PaperWood based Panels Bioenergy Pallet boards Residues Pallet boards Residues Construction timber FEFPEB SYPAL 2013

  23. CONCLUSIONS Based on the current economic outlook (IMF Spring 2013) the global sawnwood market is expected to grow by 60-80 Mm3 by 2020 from just below 300 Mm3 in 2011 Fastest growth in Asia and gradual recovery of the more mature markets in Europe and North America. Sawnwood pricing in North America and Europe follows different cycles – Europe lagging North America The bioenergy sector in Europe will continue to expand and impact raw material cost for pallet timber – varies considerably from country to country depending on the local supply demand balance and incentive systems – imports of pellets from outside the EU will play a significant role. FEFPEB SYPAL 2013

  24. THANK YOU! CONTACT: Dr Cormac O’Carroll Mr Heikki Vidgren Name.surname@poyry.com tel: +44 20 7932 8200 www.poyry.com

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